4A'S ADJUSTS TO NEW MEDIA
BUT AGENCY GIANTS ARE DUBIOUS ABOUT FUTURE OF MIDSIZE SHOPS

Last spring at the Greenbrier resort, Procter & Gamble Co. Chairman Edwin L. Artzt's new-media maelstrom sent American Association of Advertising Agencies members retreating through the foothills of West Virginia.

The best and brightest of the Four A's said they were nowhere near prepared to live in such a brave new media world.

Last week, gathered at a Hyatt resort in muggy central Florida, the traditional world of advertising clearly had regrouped. Confident from a year of interactive experimentation and tempered by the general public's gradual adoption of new media, ad executives were free to tackle the next issue: How does an agency make money from its interactive efforts?

But new-media concerns were only part of the picture at this year's Four A's meeting. Several advertising luminaries spoke of 7 changes that will reshape their business in other ways.

Somber Omnicom Group President-CEO Bruce Crawford predicted the demise of midsize agencies with revenues of $40 million to $200 million. Today's global business environment will force these shops to sell out to agency networks, he said.

"It's a truism that the large multinational agencies are commanding a larger and larger share of the advertising pie," said Mr. Crawford, whose vast holding company includes the BBDO Worldwide, DDB Needham Worldwide, and TBWA agency networks, as well as the newly acquired Chiat/Day.

Leaders of several global agencies supported that view.

"In October, I set a very definite strategy for acquisitions this year," said John Dooner, chairman-CEO of McCann-Erickson Worldwide, New York. McCann plans two creative acquisitions this year and two in the marketing services arena to strengthen the agency's "transactional" advertising capabilities and geographic presence.

Roy Bostock, chairman-CEO of D'Arcy Masius Benton & Bowles, New York, said he's pursuing below-the-line acquisitions abroad. "We will acquire and not be acquired," he vowed.

Mr. Crawford's prognosis drew some criticism, however, even from the head of one agency network to which many point as the next giant holding company. "If agencies like Fallon and Goodby are in trouble, I don't see it," said Bruce Mason, chairman-CEO of True North Communications, Chicago.

"It's all cyclical....there are waves of regional agencies that grow up together, get successful and get acquired together-we're just in one of those periods right now" said Peter Hatt, CEO of Borders, Perrin & Norrander, Seattle, acquired last year by True North.

Abe Jones, managing director at AdMedia Corporate Advisors, New York, also disagreed that midsize agencies will be at a disadvantage when it comes to media buying.

"Such agencies could easily combine their resources to acquire or start an independent media buying service," he said.

Despite all that talk, the question most often heard during coffee breaks throughout the morning was "What about creative?" as adman after adman questioned the meeting's emphasis on globalization and media concerns.

"It would seem to me that advertising agencies must stop considering their mission as one of writing great ads," was the answer from Sprint Chairman-CEO William T. Esrey, the speaker designated to pick up where Mr. Artzt left off. "Instead, they must look at their business broadly as one that uses various powers of persuasion-and various channels of media-to affect the behavior of customers."

The same two-way technology enabling marketers like Sprint to form relationships with its customers will also be used to measure the effectiveness of advertising, Mr. Esrey warned.

"Interactive multimedia advertising usually attempts to elicit an immediate response of some kind from viewers....we'll know for certain which agencies consistently deliver ads that perform well and which ones do not," Mr. Esrey said.

A precise measure of customer response might also be used to compensate agencies for the interactive programs they create, many executives speculated. Others, however, held to the belief that all forms of agency compensation are moving away from commission toward standard fees.

Still, compensation for interactive services remained a moot issue for many Four A's members.

"Some of the smaller agencies actually understand interactivity better, but they don't have the client backing to actually do it," said a marketing executive from one software design company.